An employer would pay $1000 tax for an employee with a free carpark in Auckland and earning $60,000 a year. Photo / Brett Phibbs

Draft legislation aimed at introducing fringe benefit taxes on staff carparks is broader than initially expected and contains some "nasty fish hooks to look out for", says a tax expert.

And Ernst & Young tax partner Aaron Quintal says businesses will ultimately have to pass on the cost of the new tax to their employees.

"Over time it's going to be reflected in [businesses] getting rid of carparks or lower salary increases," he said.

Revenue Minister Peter Dunne announced in October that employee carparks would soon be recognised as income along with other non-cash benefits such as grocery and petrol vouchers.

At that time it appeared the changes would only affect carparks in the Auckland and Wellington CBDs, but Quintal said the draft legislation released yesterday indicated the tax would apply to any car park that cost an employer more than $210 a month.

It would also apply if a staff member was offered cash as an alternative to having a carpark, he said.

Quintal said his main concern was the complexity the changes would introduce for businesses, especially when firms had more staff than carparks.

"It's quite common that [a business] with 70 staff might have 50 carparks and whoever gets in first uses them," he said. "They've come up with very complex formulas around how you're going to calculate the benefit on those 50 carparks." PwC tax partner Elly Ward also said the legislation would force businesses into having to make complex calculations.

"For those that are affected it's going to be a real pain," Ward said.

"One of the [calculations] looks like an NCEA maths question and businesses are meant to be doing these on a daily basis."

Related Content

She said it was bad policy to introduce a tax that would mostly affect businesses in central Wellington and the Auckland CBD.

"It's not really how we've typically taxed things in New Zealand before."

Opposition MPs criticised the new tax earlier this year, calling it a "barrel-scraping levy". At that time Dunne said he wasn't expecting "universal rejoicing" at the decision.

"But I think people will accept it's being pretty reasonable."

The tax change was expected to net the Government $23 million to $25 million a year.

The market value of a CBD carpark is believed to be around $3000 a year and the new tax paid by companies would be equivalent to the income tax paid by the employee using the parking space. This meant that if a staff member earned $60,000 a year and had a free carpark in central Auckland, an employer would pay around $1000 in tax.

The changes are expected to come into force on April 1, 2014.

In October Labour MP David Clark said the new tax was a desperate attempt by the Government to balance its books. "First the Government produced its petty paperboy tax, now it's putting a tax on carparks. What next?"